Jaipur ITAT: Retail Business Gross Deposits Taxable at 8% U/S 44AD, Not Undisclosed Income

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the gross deposits of a retail business are taxable at 8% under Section 44AD of the Income Tax Act, 1961, rather than treating the entire amount as undisclosed income.

During the Assessment Year (A.Y.) 2011–12, Santosh Kumar, a taxpayer who traded Kota Stones under the name Garg Stone and Suppliers, had ₹25,56,700 in cash deposits in his Dholpur ICICI Bank account.

A notice u/s 148 has been issued by the income tax department since the taxpayer has not furnished a return. The taxpayer, even after getting the notice, is unable to comply, directing to an ex-parte assessment u/s 144 where the AO considered the whole cash deposit as income from other sources.

On an appeal to the ITAT, the counsel of the taxpayer claimed that he was in a retail trading business, where section 44AD must be applied, levying the tax merely at 8% of gross receipts, as the business makes a profit. The taxpayer invoked the Peak credit theory claiming that merely Rs 1,39,000 must be regarded as taxable income.

Related: Presumptive Taxation Scheme Under Section 44AD, 44ADA, 44AE

It was noted by the two-member bench, including Dr S. Seethalakshmi (Judicial Member) and Gagan Goyal (Accountant Member), that the real income must be taxed instead of the whole deposit, as the taxpayer does not cooperate with the Assessing Officer (AO).

Acknowledging that the revenue had accepted the same nature of transactions in the earlier year, the tribunal held that section 44AD was applicable and confined the taxable income to Rs 2,05,000, computed at 8% of the total deposits.

Read Also: ITAT Jaipur: ₹12 Lakh Addition U/S 69A Unjustified; Sundry Debtors Not Unexplained Income

The tribunal ruled that the Assessing Officer’s (AO) assessment of ₹25,56,700 as undisclosed income was unjustified and, therefore, removed the addition. The tribunal partially accepted the plea, deleting the addition made by the AO and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].